'Putinization' of the ruble
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By Chris Monday
Many feared the worst when, in February 2013, rumors began to circulate that Russian Central Bank Chairman Sergei Ignatiev, an independent-minded monetarist, might be replaced by populist economist, Sergei Glazev.
For Korean readers, this would be somewhat similar to naming the colorful politician Kang Ki-gap head of the Ministry of Strategy and Finance. However surprising, the politicization of the Central Bank appeared to be quite probable in the recent context of a reactionary lurch in Russian political life: hunts for “foreign agents,” claims that Americans are torturing Russian orphans, virulent anti-gay campaigns, and the imprisonment of opposition politicians. Lately there has been ominous talk of the need to ‘nationalize the elite’ of Russia.
While much focus has been given to the programs of quantitative easing in the United States and Japan, changes in Russian monetary policy have been little noticed by international journalists. This is natural given the puny role played by the ruble in the global economy, less than one percent of the total currency in circulation.
Glazev would have symbolized a significant turn in Russian policy. In 1991, he was part of Yegor Gaidar’s economic team, but his views soon diverged from the “young reformers.” He supported a parliamentary coup against Yeltsin and later backed the right-wing general, Alexander Lebed. He was active in nationalist political movements, such as the “Congress of Russian Communities” and the “Union of Russian People.” He headed the party “Fatherland.”
While never expressing any xenophobic views outright, Glazev frequently expounds on his political philosophy on far-right Orthodox radio. Currently, Glazev serves as an economic adviser to Putin, focusing on the ‘Eurasian’ project of integrating Belorussia, Kazakhstan and Russia. He is rumored to be connected to the hawkish Dmitri Rogozin, a one-time political ally, and Igor Sechin, a leading power-broker.
Glazev has been a strident critic of Russian monetary policy, the bane of Russian conservatives. For Glazev, the central bank is dominated by compromised liberals who, in the pocket of foreign capitalist, have purposely hobbled the economy. According to this view, Ignatiev and Alexei Kudrin systematically sabotaged Putin’s leadership by maintaining a strong ruble and high interest rates.
Unpatriotically, the Central Bank bought foreign assets instead of investing in the Russian economy. These mistaken policies according to Glazev, encouraged a “cosmopolitan” elite which is more concerned with their foreign investments than fortifying domestic industry. The Central Bank, according to Glazev, must take a much more vigorous role in promoting a shift away from natural resources towards new technologies.
Perhaps Glazev was never a serious contender for chairman; his candidacy may merely have served as a warning to liberals not to push Putin too far. It is rumored that Putin’s first choice was the former Minister of Finance Alexei Kudrin, who, unfortunately, had alienated many liberals in a public feud with Dmitri Medvedev.
Business leaders had backed Aleksei Ulyukayev, an adviser to Gaidar in the 90s and a staunch monetarist. On March 12, Putin selected a compromise candidate, Elvira Nabiullina. She was a graduate student of Evgeni Yasin, a forefather of Russian liberalism, but also a Putin loyalist. Nabiullina has signaled that, for now, she will continue the course of fighting inflation with a tight money policy.
Putin, shunning the example of Belorussia, continues to demonstrate that he divides the “dirty” sideshow of politics from the real world of power politics and economics. While radical firebrands can be allowed on domestic television, economic policy must stick to a conservative course. Putin’s models here are the 19th-century czars such as Nicholas I.
While in public he supported the reactionary policy of “orthodoxy, autocracy, and nationality,” among the financial elite, the czar made clear that he was restrained by his spendthrift Minister of Finance, Count Cancrin. In an often cited example, when Nicholas I, the mighty autocrat of the Empire, asked Cancrin if military spending could be increased, he was rebuked, “No it cannot be done.”
The problem with this model was that even though the Empire’s financial system seemed to adhere to the latest teachings in economics, its feudal politics hampered the development of a market system. Similarly, no matter how disciplined the monetary policy, Putin’s arbitrary political system is thwarting Russian growth. Investors know that the Central Bank ― as the courts, the legislature and the media ― enjoy no real independence and, in crisis, will do whatever is most expedient.
The writer is an associate professor of Dongseo University. His email address is chrismonday@gmail.com.